My mate Simon Jackson kindly wrote this Guest Blog to try to capture some of the essence of how the recent Market collapse has played out from his point of view. Having read it through for the proof-read, I can say it is a very helpful piece and brings some perspective to what is going on and also shows how someone with Simon’s background of Accountancy can make errors. I particularly endorse his comment that it would be a big shame if newer Private Investors get scared off and leave the great game. I had to smile also when I read his words about selling his Winners too fast !! (or in this particular case his selling being perhaps motivated by simply the relief at getting back to break-even after a difficult Investment had turned around.)
Anyway, it’s a really good read and BIG THANKS to Simon for providing WD Readers with this and for helping me fill up my Website with yet more content !!
Cheers mate, Pete.
I’m fairly certain I have written a similar Blog to this many years ago and I think it might have been titled with the use of the word ‘Roadmap’ or something; but I can’t be too motivated to dig it out and I don’t think it will hurt one little bit to scribble out something new which might have some additional thoughts in it and certainly is in tune with the current zeitgeist.
However, I have been enthused to write this because the recent plunge in the Markets and the behaviours and activity I have witnessed on Twitter etc. have highlighted to me that so many People do not have any kind of Strategy and even less do they have a Flexible Plan that is able to adapt fairly quickly to changing circumstances. There doesn’t seem to be a lot of thinking ahead yet it is vital that you do this. The most obvious manifestation of this is that a large number of People are clearly ‘Uber Bulls’ and they in essence remain pretty much 100% Invested whatever the Markets do. This has proven to be a very profitable and wise approach for the last 12 years of a rampant Bull Market, but the idea that this will always be the case is in essence very naïve and dangerous.
Fairly recently I caused a bit of a stir on the Tweets when I suggested that People who have regular payment plans into Funds (normally Unit Trusts – see my ‘Funds’ page for definitions of what the different types of Funds actually are), might be wise to suspend the automatic payments prior to the Coronavirus problems when it is highly likely that we could see Stockmarkets really struggling.
I got a lot of flak for this and it is very understandable why because there are maybe some advantages of such drip-feeding over time; but for me personally, I wouldn’t do this at all. But then I am perhaps a different type of Investor to many others and there is an element of ‘Horses for Courses’.
I’ve been meaning to write this hopefully fairly short Blog for a while but I keep getting distracted onto other things and we actually discussed this on a recent TPI Podcast so I wasn’t feeling a huge need to get it written. Having said that, we didn’t go into a comprehensive coverage of the issues and there is always a sense I have that I should try to cover as many topics as I can within my Blog Archive, so that WD Readers can revisit it in the future if they want to know about something. Maybe new Readers might find it useful also as the whole WD thing should really be to help Newbies as its main Sultana d’Etre (should that be ‘Raisin’?).
The essence of the ‘problem’ with my Income Portfolio is that my original theory behind it was to generate an Income Stream from the Dividends that was at least 5% a year based on the starting position each year. Apart from other aspects such as low activity and low risk and the diversification benefits, part of my thinking was that at some point in time in the future, I might have grown the Income Portfolio enough so that it would be throwing off Dividends that might amount to maybe £6,000 a year or so and that with other Income sources I have, I could get to a position where my Yearly Spending needs on food and rent and stuff are covered without me having to sell any Shares or make any money on Spreadbets etc. It is simply easier to just take Dividend Cash out of an Account than to have to think about which Shares to sell and all the timing issues and suchlike.
I am sure I have mentioned a few times before how I really struggle with this idea of ‘Growth Stocks’ and ‘Value Stocks’ and my whole beef is really around the idea that a Growth Stock doesn’t need to encompass the concept of Value and that Value Stocks really seems to be lazily used to describe Stocks with a large Dividend Yield. Of course the idea that all Stocks with chunky Yields represent value is silly because they could just as easily be flagging a big problem and actually be a ‘Value Trap’.
‘Value Trap, utter Cr*p.’
I was thinking that had a bit of a rhyme to it and then I remembered a joke from the comedian Tony Hawks (he’s on Radio 4 a bit but most people probably won’t know him – apart from the book ‘Round Ireland with a Fridge’ which is very good), where he talks about when he had a minor hit record as ‘Morris Major & the Minors’ probably in the late 1980s and it was called ‘Stutter Rap’. Anyway, he was on about reviews it had got and some wag in a Music Paper of the time had the written the headline; ‘Stutter Rap, Utter Cr*p’.
I first wrote the text in the following Blog back in September 2019 and tweeted out that I had written it but that it would be ‘parked’ in my reserve of half completed Blogs until a time when I was under pressure of having too much on, and I could pick it up and release it.
Funny enough in light of a bit of a Twitter Storm I have caused today, this actually seems highly appropriate although it is very much at the risk of chucking more petrol on the inferno !!
If you haven’t read Part 1 yet it is probably a good idea to do so and you can find it here:
When that Part finished I was going through the reasons why I am thinking that a proper full-on Bubble has become more likely, and here are a load more:
Technical ‘Breakouts’ on Major Indexes
If you keep up with my Weekly ‘Stocks & Markets’ Blogs which usually come out late on a Sunday Night, then you will probably have seen me mentioning the strength in the Indexes and how many have either recently ‘Broken-out’ to new All Time Highs (the US Markets) or they are very near such Break-outs and I expect to see them soon (German DAX, CAC40, FTSE100) and such Price Action is extremely Bullish and supportive of the start of a Bubble if that is how things are going to play out. It is pretty remarkable that after 11 years of the Longest Bull Market ever, we still have such strength and demand for Stocks.
In a recent TPI Podcast we talked at length about a potential Stockmarket Bubble and I also wrote a bit in a Weekend Charts Blog. Both times I think I promised to write a more detailed Blog specifically on the subject and in theory as I start writing, this Blog is intended to fulfil that commitment. You can find the Podcast here by the way:
First off I must make it very clear that I am not saying a Bubble is definitely going to happen; nobody can foresee the future (least of all me !!) and all we can realistically do is to assign probabilities to possible future outcomes. Using such an approach, I would guesstimate that perhaps a year or more ago, I would have said that a Bubble was a very low likelihood, perhaps something like 5 to 10%. The fact is that Stockmarket Bubbles are very rare and hence a low probability is appropriate, but with the various factors that I will get onto shortly, I would now say that the probability has risen to perhaps 15 to 20%.
Well, 2019 turned out quite a ‘funny’ year where we had untold (or, more accurately, told far too much !!) political farce and a very nervous Market, yet by 31st December 2019 most Markets had rallied hard and the US Market in particular was truly incredible. To give a bit more colour to that statement, the Table below I worked out as I do every year using the Start and Finish Numbers for each Index from SharePad and this shows exactly how well the Markets performed. Please note this does not include Dividends, so for example on the FTSE100 you need to add about 4%, bringing the Total Return up to about 16% and for the FTSE250 you can add about 3% to give a Total Return of 28% - that is pretty impressive !!
Of course there are no Costs in here so in reality when you run a Portfolio you will get some drag from Costs such as the Dealing Fees and Buy/Sell Spreads and the Stamp Duty. Using ETFs you could get nearer these figures as the Costs are often extremely low (see the ‘Funds’ page of my Websites).
Needless to say if you have not read Part 1 yet then it probably makes sense to go back to that one first before you start on this one. You can find it here:
Anyway, I was going through various Bullet Points around the subject matter concerned and here are the next bunch:
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